New York Progressives Meet Immovable Object: a $6 Billion Budget Gap

For much of this year, it seemed that nothing could stand in the way of progressive activists’ agenda in New York. Not conservative backlash, not big money’s lobbying, not even Gov. Andrew M. Cuomo’s hesitations.

Then came the $6.1 billion budget gap.

The looming fiscal crisis, revealed by state officials last month, is New York’s biggest since the Great Recession. And more than any of the other political forces that progressives toppled this year, it threatens to derail their momentum.

Legislative leaders are already wrangling over how to plug old budget holes, never mind creating new ones. Budget officials have floated midyear spending cuts. Conservatives have trumpeted the deficit as proof of progressive folly.

The activists have remained undaunted, continuing their calls for more spending, on more programs, at more speed. They want universal health care, more funding for low-income schools, a more robust anti-homelessness plan and aggressive spending on green energy.

When lawmakers have balked, they have threatened primary challenges, reminding the legislators that it was left-wing activists who helped deliver Democratic control of Albany last year.

Still, next year’s budget negotiations are shaping up to be perhaps the greatest test yet for New York’s ascendant progressive wing. After taking on Mr. Cuomo and the real estate industry, they must now show whether they can overcome this more mundane — but potentially more implacable — obstacle: an old-fashioned budget deficit.

Even the most left-leaning lawmakers acknowledged the need for potentially painful concessions.

“Nobody ever likes to take anything away once it’s been given,” Senator Liz Krueger, a Democrat who leads the Senate’s finance committee, said.

For now, lawmakers seem to be playing it safe with their base. Carl E. Heastie, the Democratic speaker of the Assembly, said this month that he would “always rather raise revenue than cut” spending to address the budget gap. He also said that he thought wealthy New Yorkers could contribute more, echoing a key demand of progressive groups.

Several of Mr. Heastie’s members are facing primary challenges next year from self-declared democratic socialists, challenges the speaker has promised to quash.

The Senate majority leader, Andrea Stewart-Cousins, also a Democrat, said this month that she wanted to preserve services that “New Yorkers are used to having.” But, unlike Mr. Heastie, she emphasized that new taxes were not her chamber’s “first fallback.”

Still, opinion is not uniform. Ms. Krueger said she supported new taxes on the wealthy, as well as taking away outdated tax breaks for certain industries.

The extent of the deficit became clear last month, in a report from the state’s Division of the Budget.

Until then, officials had predicted a $4 billion shortfall in the 2021 fiscal year, which begins April 1. But in its new report, that number suddenly jumped — by $2 billion.

Next year’s deficit now stands at $6.1 billion. By 2022, the report estimated, it would reach $8.5 billion.

The heart of the deficit stems from the state’s overspending on Medicaid. Budget officials blamed the gap on a higher minimum wage, cuts to federal Medicaid funding and ballooning enrollment for certain health care services.

But in a sign of how politicized budget negotiations are sure to be, even those assertions have come under scrutiny.

While the factors cited by the budget division did explain growing costs, fiscal experts said, they did not explain why nobody noticed the deficit earlier — or rather, why they did not report it earlier.

In particular, experts have focused on $1.7 billion in Medicaid payments that the state quietly deferred from the end of March to three days later, in April. As a result, those payments were pushed into the following year’s budget — making it appear as if the state had stayed within its Medicaid budget for the year, when it had not.

“They would have seen that this was a problem, and they chose not to act,” said David Friedfel, the director of state studies at the Citizens Budget Commission, a nonpartisan fiscal watchdog.

State budget officials said delaying payments was a common book-balancing practice. In fact, they plan to do it again to offset next year’s shortfall, by kicking as much as $2.2 billion to future budgets.

They did not foresee the crisis sooner, they said, because the Health Department did not tell them about Medicaid overspending until the last minute of budget talks.

Freeman Klopott, a spokesman for the budget division, defended the state’s fiscal stewardship, noting that the rate of overall Medicaid spending had grown at less than half the national average during Mr. Cuomo’s tenure. (Even so, New York’s cost per person enrolled in Medicaid is 50 percent higher than the national average, Mr. Friedfel said.)

“We are developing a plan to be introduced in January that will once again limit New York State’s Medicaid spending growth and continue high quality care for six million New Yorkers without raising taxes to cover the cost,” Mr. Klopott said in a statement.

But some have wondered whether Mr. Cuomo’s political interests played a role in the fiscal maneuvers.

In 2018, as the governor was locked in a heated primary campaign with his own left-flank challenger, he asked the powerful Greater New York Hospital Association to donate to the State Democratic Party, which was backing him.

The association complied, with more than $1 million in contributions — twice as much as it had given to any campaign in at least a decade. Soon after, the state authorized an across-the-board hike to Medicaid reimbursement rates — its first since 2008, and a key demand of health care groups, including the hospital association.

Mr. Cuomo’s office has denied any link between the reimbursement hike and politics. The governor’s budget director, Robert Mujica, said the hike was linked to a one-time windfall for the state from the sale of an insurance company, and that the Legislature approved using that pot of money on costs related to health care, months before the hospital association’s donation.

“People are just trying to connect dots where the dots don’t connect, in order to have a convenient narrative,” Mr. Mujica said.

Still, it is clear that politics will be inextricable from next year’s budget negotiations.

Early this month, Mr. Heastie taunted a Republican assemblywoman on Twitter, accusing her of trying to turn the deficit into campaign fodder. The assemblywoman, Nicole Malliotakis, had criticized Mr. Heastie’s call for new taxes.

Mr. Heastie fired back, needling Ms. Malliotakis for a failed mayoral bid in 2017, as well as her current challenge to Representative Max Rose on Staten Island. “Keep using the same propaganda if it helps your campaign,” he added.

Rhetoric has also grown heated on the left. Michael Kink, the executive director of Strong Economy for All, a coalition of progressive groups and unions, pointed to the electoral repercussions of voting down new spending.

“If lawmakers are protecting billionaires and starving schools and subways, it’s going to be a harder ask when you’re asking someone to vote for you,” Mr. Kink said, calling for new taxes on those making more than $5 million, as well as on luxury second homes.

The state teachers’ union, which lavished millions on the Senate Democrats’ campaigns last year, is also looking for a return on its investment. The union is asking for $2 billion in new education funding.

The union had not yet discussed whether to withdraw support in next year’s elections if lawmakers did not offer more funding, said Andrew Pallotta, the union’s leader. But he said it was already planning how to loosen a tax cap that lawmakers approved this year.

“Once the bell goes off, session begins, and there will be a race,” he said, referring to the legislative session’s start in January. “And we’re very interested in winning that race.”

Jesse McKinley contributed reporting from Albany

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